Strange pronouncements are being made as Sri Lanka celebrates 150 years of the tea industry. Prominent economists are referring to "The obsessive love for a non-existent Ceylon Tea in the world market" and leading tea exporters are saying at events held to mark the 150 years of the industry, that the tea industry has now to be funded by the taxpayers for fertiliser, replanting and price guarantees ‘to pacify the large voter base of smallholder farmers’ which now produce over 70% of the tea crop. Such intellectuals and traders argue that the importation of tea should be liberalised so that exporters in this country could import cheap tea from overseas to re-export from Sri Lanka. Thus the discussion in this 150th year of Ceylon tea seems to be about the contribution that Sri Lankan tea exporters can make to develop for example, the Vietnamese tea industry and to finish off Ceylon tea. After celebrating the 150th year, the idea seems to be not to have a 151st year of Ceylon tea.
We spoke to Merrill J. Fernando a leading tea exporter and Malinga Herman Gunaratne a veteran tea planter about this rather odd way of marking 150 years of the tea industry. What follows are views they expressed on this matter. MJF explained that the British in their wisdom had always treated the industry as one unit. They had the Colombo Tea Traders Association to protect the interests of the industry which had six members to represent the tea plantations, six members to represent tea exporters and one member to represent the brokers. Thus the three sectors of the industry were well represented. One party didn’t try to score points over the other and they watched over the interests of the industry. However in recent years, there sprang up a body called the Tea Exporters Association made up only of traders who want to trade in tea, and make their profits. Its just ‘tea’ they want to sell and not necessarily Ceylon tea. Traders have no loyalty to the origin of their product, or to the consumer. In any country the loyalty of traders is to their profits.
So the traders here have been asking for the liberalisation of imports of tea - in other words to allow the free inward flow of any foreign tea. Their concern is to be competitive in the marketplace in price. If you try to compete on price, you will lose because the next man will be cheaper than you and it will be a race to the bottom. The final arbiter is the consumer. Is it the case that the consumer always looks for the cheapest product? In some cases, the poor people look for a cheap product. Now the retailers in the developed countries have made every single product as cheap as possible. Consumers know that the products which are lower in price are lower in quality. But consumers are used to buying on quality as well. If a tea is identified as pure Ceylon tea, people are willing to pay a premium for it. That is how Ceylon tea enjoys the highest prices in the world. We get at least two dollars per kilo more than tea from any other origin.
However, there are exporters who sell below our auction net sale average which cannot happen if the regulations governing the tea industry are followed. They are doing this without importing cheap tea. If the cost of production of tea is Rs. 575, and the monthly auction average is Rs. 600, there are exporters who sell value added tea at Rs.300 to 400 whereas the real price of value added Pure Ceylon tea should be well over Rs. 1000. There are some brands that sell at 1500 a kilo. Someone may ask, if there are so many exporters who can sell tea at below the average cost or production, why do we need to import cheap tea because they already have it here. They call this refuse tea or reprocessed tea, but it’s illegal and may be stopped at any time if the government takes meaningful measures to implement the regulations that are already in place.
So if you are looking for cheaper tea we already have it here - at least a certain quantity of it. Whether it is reprocessed tea (refuse tea) or whether it is stolen tea, we do not know. The rule should be that you can’t export below the cost of production. There are some people who sell tea which through official channels are not available at those prices. People who are now selling at Rs. 400 a kilo want to make that price even cheaper. If they import tea here for re-export, the pack will say ‘packed in Sri Lanka’ or ‘contains Ceylon tea’ or something to that effect. Big foreign exporters like Tetley and Tata and Ahmed tea from India want to come here because anything that goes to the consumer from Sri Lanka is deemed to be Ceylon tea. They want to abandon their low cost production centres and come to Sri Lanka.
How PBJ saved the tea industry
If the importation of tea is allowed, the traders will make money by making our tea cheaper, but our tea industry will perish. The people who sell tea at Rs. 400 want to bring it down to Rs.200. That is the trader’s position. However, the consumer perception throughout the world is that Ceylon tea is the best tea. One of the reasons why our tea sells at the highest prices in the world is because we are the cleanest tea with the least insecticide and pesticide residues. Chinese tea for example, has been found to contain 13 different residues. So if you blend this tea with foreign tea and it gets tested in Japan, it will be Ceylon tea or tea originating from Sri Lanka that gets labelled as unclean. The wealthier Chinese people don’t drink Chinese tea any more. Even though some speak disparagingly of ‘the obsessive love for non-existent Ceylon tea’ there is a lot of Ceylon tea around. On most airlines and in five star hotels in many parts of the world, what you get is pure Ceylon tea.
What traders tell unsuspecting people whose opinions matter is that there is nothing special about Ceylon tea. If so, how is it that we get the highest prices in the world? Due to the recent drought and floods, tea production declined and the prices went up by 40 to 50%. Yet every kilo of tea was sold at those prices. If nobody is interested in Ceylon tea as the advocates of importation claim, then Ceylon tea should remain unsold and the estates should be full of unsold stock. But what we have here is tea being sold at any price and there isn’t a kilo of tea that remains unsold. The traders are trying to create the view that our tea cannot be sold because of its high price. Some people go to the extent of saying that Ceylon tea is not known in the world. The actual fact is that the only tea known in the world is Ceylon tea. Those who favour the importation of tea argue that the volume of exports will increase if importation is allowed and that there will be more employment as a consequence.
In actual fact however, if tea is imported to be re-exported, that will ruin the tea producers in Sri Lanka and deprive hundreds of thousands of people of their livelihood. Some of these tea traders have been dishonestly telling the smallholders that they will get high prices if tea is imported. How can the local producer get high prices for his tea when the very purpose of importing tea is to reduce the prices? There are several large plantation companies and organised smallholder groups so people may be wondering why there has been no counter-campaign from the producers to oppose the proposal to import tea. There are many plantation companies that are against the importation of tea but they don’t want to talk about it because they are afraid that the exporters will retaliate by not buying their tea at the auction. This is also the reason why tea factory owners are also silent about it. Some intellectuals who are for the importation of tea, have criticised Dr. P.B. Jayasundara the former Treasury Secretary for having opposed the importation of tea for blending.
Dr. Jayasundera saved the tea industry. As a compromise measure he said that if people are willing to set up a factory in a place like Dubai and pack Sri Lankan tea blended with other teas for sale, he will give them some incentives. But there were no takers for that offer because they wanted to pack here on Sri Lankan soil for the tea to be sold as tea packed in Sri Lanka which automatically turns it into Ceylon tea even if it contains very little Ceylon tea. There are certain problems at the production level, the low yields and the high unit cost of production. But these problems relating to agricultural practices have to be dealt with at a different level. The solution for shortcomings in agricultural practices in the cultivation of tea is not the importation of tea. The plantations need to improve their cultivation practices - there is no doubt about that. There are various ways in which yields have been increased in other countries.
Some say that we are selling tea to a ‘dying generation’ and that younger people are not interested in drinking tea. But of Dilmah tea consumers, 25% are young people between the ages of 16 to 25. Various innovations have been introduced to make tea attractive to young consumers. The solution to the problem of our tea being more expensive than other tea available on the market, can be overcome only by selling only packaged tea under Sri Lankan owned brands which are packed exclusively in Sri Lanka. About 40 years ago, the proportion of packaged tea was close to zero. Now it is said that it is 45% value added tea. But most of this is in the form of local packers packing for foreign brands. It is essential that the brand also has to be local otherwise the money goes out of the country. Only about 20% of Sri Lankan tea is sold overseas under local brands. The target should be to increase this proportion to 50%. Such is the take of two veterans of the tea industry on the matter of the importation of tea.
What we can learn from Trump
The present campaign to import cheap tea to be able to bring down the cost of tea exported from Sri Lanka, will immediately drive down the prices of local tea making it an unviable crop due to the high cost of production here. This will place the jobs of well over a million people directly or indirectly employed in the tea industry in jeopardy. The campaign to import tea with scant regard for the consequences in order to increase the profits of a few exporters is not sound policy. We should learn something from the revolution that took place in the USA. Donald Trump’s pledge was that he would curb corporate greed and force American companies to retain their production facilities in the USA without relocating production facilities overseas to increase the profits of the private corporations while depriving American workers of jobs. The corporate profit motive and the interests of the nation do not always go together.
The Sri Lankan equivalent of the corporate scramble to relocate production facilities overseas which drove America to the ground, is this bid to import cheap tea so that exporters could make greater profits. In the case of the USA, the big corporations wanted to make use of the American market to sell their products but were not willing to produce their goods on US soil because of the higher cost. Trump had to crack the whip and tell them to either produce in the USA or face punitive taxes. Countries need governments to look after the interests of the nation not just of the private corporations. Likewise in Sri Lanka, the tea industry is not just the exporters. There are over 400,000 tea smallholders and over 200,000 estate workers not to mention tens of thousands of others employed directly and indirectly in servicing the industry.
Just as the big American corporations appeared to have forgotten that the USA was not just a market but had people who needed to have jobs and an income, some Sri Lankan exporters appear to have forgotten that why the tea industry is important to Sri Lanka is not just because of the profits of the exporters but because it provides a livelihood for so many people. Destroying the tea producers to increase the profits of the tea exporters would render the tea industry useless to Sri Lanka. The most unacceptable aspect of this campaign especially in this 150th year of Ceylon Tea is that everybody wants to import cheap tea here to be blended with Ceylon tea to be sold overseas using the image of Ceylon tea. Nobody wants to set up a facility overseas where they can do the same operation and re-export to wherever they like because tea packed in other locations will not sell like tea packed in Sri Lanka – thus conveying the impression to the unsuspecting buyer that it is Ceylon tea.
The whole purpose of importing tea from other countries to Sri Lanka is to perpetrate a giant scam on the tea consumers of the world by passing off cheap foreign teas as tea from Ceylon. So, the importation of tea should never be allowed because it will on the one hand ruin the Sri Lankan tea industry and deprive about a million people of their jobs and on the other hand will be lending the name of Ceylon Tea to scam all the tea drinkers of the world by making them drink Vietnamese tea thinking it’s tea from Ceylon.